Treasury estimates if financial institutions pass on prudential levy costs to customers, the cost of borrowing would increase by less than one basis point and insurance premiums would jump by less than 0.2% on average

If financial institutions pass on the costs of a new prudential levy to their customers, the impact would be modest, according to Treasury.

“As the size of a prudential levy is relatively small, the overall significance of the incidence is limited,” a Stage 1 Cost Recovery Impact Statement prepared by the Treasury with input from the Reserve Bank of New Zealand (RBNZ) says.

“Even if financial institutions were to pass on the full increase in costs to customers, the impact would be modest," The impact statement says.

“The Treasury estimates full pass-through of a prudential levy would cause the cost of borrowing to increase by less than 1 basis point, and insurance premiums to increase by less than 0.2%, on average.”

In May, as part of Budget 2026, the Government announced it was introducing a prudential levy on banks, non-bank deposit takers, insurers and financial market infrastructure providers (FMIs).

At the time Finance Minister Nicola Willis said the levy would help cover the cost of services provided by the RBNZ and she would be disappointed if banks chose to pass on the costs to customers.

The prudential levy consultation paper, issued on Tuesday by the RBNZ, estimates the tax would raise $209 million over three years. Deposit takers would pick up the tab for $113 million, or 54% of the total, insurers $81 million, or 39%, and financial market infrastructure providers $15 million, or 7%.

Based on March 31 assets, the proposal would see ANZ NZ, with $219 billion in assets, pay in the vicinity of $10 million annually. BNZ, ASB and Westpac NZ, with between $130 billion and $144 billion of assets each, would all pay several million dollars, and Kiwibank, with assets of $43 billion, would pay significantly less.

IAG NZ, the country's biggest insurer, could be looking at an annual levy north of $5 million.

Treasury's estimates were in the context of other changes which would increase the regulatory burden on the financial sector, the impact statement says, and that may also result in costs being passed onto customers.

Examples of this include the implementation of the Deposit Takers Act and the Despositor Compensation Scheme, the reform of the Insurance (Prudential Supervision) Act, the proposed new AML/CFT (Anti-Money Laundering and Countering Financing of Terrorism) levy and the Depositor Compensation Scheme Levy.

The impact statement says there are also non-regulatory factors which affect costs. "For example, due to multiple drivers, insurance premiums have been growing quickly: for example, home insurance premiums rose by 40% in the last two years."

‘Changing the way we’re funded’

RBNZ Assistant Governor for Financial Stability Angus McGregor touched on the prudential levy at the Financial Services Council conference on Thursday, saying fundamentally, the levy wasn’t going to change how the central bank operated.

“At its heart, this change is about changing the way we're funded,” McGregor says.

McGregor says the change is about shifting the cost of that regulation from the self-funded RBNZ revenue to those parts of industry that benefit from regulation.

"It's very common in other respects across New Zealand in terms of levy funding," he says.

He notes this type of levy was common in other places like Australia, Canada, Ireland and the United Kingdom.

The RBNZ does not anticipate this would change how it regulates but McGregor acknowledges something like the prudential levy may not be welcomed by the industry as it is another cost.

When it came to the potential for costs to be passed on to customers, this was something that had been considered by the RBNZ. 

The RBNZ would be surprised if that was the case "when you look at it across the piece”, he says. McGregor reiterated that the levy was changing the way they were funded, not the way they worked.

“We are always thinking very carefully about the work we do, how we do it, how we're really laser-focused on our mandate and delivering that, and not creating additional work just for the sake of it ... I would not link the levy to anything additional. Our mandate is our mandate ... This is a funding question.”